WORLD DEPRESSION

Evening Post, Volume CXI, Issue 114, 11 November 1930, Page 9

WORLD DEPRESSION

ANOTHER YEAR TO GO

GENERAL DAWES'S VIEWS

CAUSES AND EFFECTS

Ambassador Dawes, as guest at the Ziord Mayor's luncheon in Belfast recently, made a speech in which he discussed the psychological causes of the present world depression and ventured the suggestion that business would be normal again by the summer or fall of next year, says the "New York Times." As his excuse for talking of the affairs of the world and the-United States in particular, General Dawes said it ■would be inappropriate for him to try to tell Belfast business men about their own affairs. "A world depression in business," General Dawes continued, "is due always to a sudden, change of attitude of the world's people. This changed attitude is often explained in different countries as being the result of diverso -causes, including unwise national policies, undue speculation, over-production, under-eonsumption, and political or social upheavals. These, however, are more the effects of this change of general attitude than causes of it. It is ofteu easier to conclude that oue catastrophe or error in business is the cause of the following ono rather than that both originate from one underlying cause. PRECEDED BY STOCK CRASH. "In the United States, for instance, as well as elsewhere, a major depression in business always "has been preceded a few months beforo by a stock panic induced by over-specula-tion. Many have assumed that the collapse of the stock market caused the later depression. Many assumed, too, that this correct forecasting of business trends by stock speculators is evidence, of the composite intelligence of tho speculating class. Nothing could be more untrue, for not only is the speculating class as a whole no wiser than those in other business, but no intellectual judgment of the future can always prove right, and in this case the general unloading of stocks months before general business is materially affected always occurs. "Tho truth is that the stock market depression and the following business depression are both caused by the same thing—a fundamental change in the attitude of the average man, resulting from a sudden loss of confidence on his part, the first public manifestation of which occurs on the Stock Exchange. Tho reasons; why the' Stock Exchange gives this first evidence of the change in the general attitude are simple. "Business on . the Stock Exchange is transacted under unique conditions, conducive to almost immediate public registration of the general lack of confidence in Values. On the Stock Exchange when confidence in the future is rampant every facility exists for speculators to get. easily into debt and in proportion to the thinness of their jnargin and larger amount of stocks they carry upon a given capital invested as a margin, tho larger do they compute their prospective profits and, contrariwise, when their optimism falters the quicker will they run from a prospective loss, necessarily proportionately as large. MERCHANDISE SLOWER MOVING. "A man with merchandise to sell, on the other hand, when he commences to lose confidence in- values, will dispose of it gradually. He is not generally under the necessity, when the market drops, of immediately putting up additional margins of security to bis creditors if ho prefers not to sell just then. When tho market slackens he does not have the fear of being.sold out by somebody else if he prefers to take his. own time in selling. Moreover, in general business, so much of which is concerned with tho supplying of human necessities, thero is a greater continuance in demand, and, in consequence, in times of depression a slower market decline than in stocks, the demand for which lessens more abruptly. Nevertheless, the fundamental cause of the decline in both is the same. "Let us consider the fundamental cause. The comments of learned economists differ so widely in respect to it and the probable time of continuance of tho present world-wide business depression that we laymen may b°e excused for seeking simpler explanations. The qualities of composite mankind are but the qualities of the average of individuals comprising it. As the average man in his -personal or business activities occasionally departs from the usual, so does mankind. As a man sometimes cuts loose from safe business moorings, so does mankind. As a man sometimes embarks upon the unknown and dangerous seas of speculation and unsound enterprise, so does mankind, and what then happens to man happens to mankind. THE REACTION AFTER THE BOOM. "We don't know why a man goes wrong, but wo have no difficulty in knowing when. Thus with mankind. After a hectic period induced by a regrettable combination of over-confi-dence and misdirected energy, the reaction and return to a normal view of things causes first a business collapse, then a period of stagnation, then a period of recuperation. "Tho -business of mankind is now in the stage of recuperation. We know that in a general way, under tho law of action and reaction, periods of under-activity in business are somewhat proportional in length to the periods of over-activity preceding them. "That time is now considerably over a year behind us when tho public suddenly 'turned over' from exhilaration and that confidence in the future which i 8 the basis of prosperity, to that lack of confidence which is the basis of business depression. "I do not think the business of tho world left its normal trend earlier than 1927, two years beforo the collapse of prices in 1929 on the leading stock exchanges of most nations. If I am right in this, other things being equal, may wo not hope to see the normal trend of world business resumed by the summer or fall of next year, which will mark the end of the after two-year period? Exceptional local conditions may, in this or that country, advance or retard the healing effect-of returning world business confidence, but nothing is more certain than the coming of business recovery, The business fool in 1929. was he who had no fear. Tho fool now is he who has not hope."